March 2014

Moving images from the International Space Station were beamed down in February and signal a giant leap for investment research tools, finds Nick Fitzpatrick.

Mark Twain said a gold mine is a hole in the ground with a liar standing next to it. Investors in North America’s 19th century Gold Rush unfortunately lacked satellite technology to carry out their due diligence – but this is not the case for investors today. Images that were formerly the preserve of the military and science can be used to check the credibility of an emerging market country’s official GDP figures, or to make sure there really is “gold in them thar hills”, as Dr Matthew Stephenson is reputed to have said in the California Gold Rush era.

Whether checking a claim of accelerated growth in a developing country, or increased business activity in a stock, the first question might be: Are the lights on?

The two NASA images show North Dakota at night in 2003 and again in 2012. The 2012 image shows a much busier environment and is a reflection of the Bakken oil boom and gives, should it be needed, some verification to the claim of the US energy boom.

Bakken is a rock formation under parts of North Dakota, Montana and two provinces in Canada that yields oil and has become one of the most important sources of fuel in the US.

A low-resolution satellite took the 2003 picture, while the second is from a newer NASA satellite, S-NPP, which is 800km above the earth, moves from pole to pole in 100 minutes and takes higher resolution photos.

STEREO IMAGINGEach pixel of the newer image represents 700 metres on the ground, compared to 300km for earlier images.

London-based Geospatial Insight and Chicago’s RS Metrics are two companies that license images from satellite operators like NASA and distribute them to industry.

Dan Schnurr, chief technology officer of Geospatial Insight, says take-up by asset managers of this high-tech form of monitoring has so far been low, with the exception of some hedge funds, which he would not name.

Banks, an insurer, and the military also count as Geospatial clients.

According to Schnurr, who is fond of the Twain quote, a private investment manager used Geospatial’s service to monitor a mine it invested in.

“Stereo imaging”, where images are taken of an asset from different angles, were used to monitor heaps of earth that result from excavation. If the heaps are not getting higher, the mine operator could be the sort of person Twain referred to.

“If trucks are not working in the day time and piles of dirt are not building up, you can see there is no excavation going on,” says Schnurr.

The process can be used for monitoring other stocks. For example, how consistently full are car parks at Walmart?

How frequently do delivery trucks leave Amazon depots? How many lights are on at night in China’s vast new cities built by developers?

GOOGLE EARTHSchnurr says one use of this technology is in the weeks leading to corporate results.

“An investment manager has to work out when to sell, and by monitoring an asset we can pick up on real world activity ahead of a company announcement. If things are not going well, you can anticipate the stock is going to fall.”

He adds: “You have to look at an asset in the same timeframe that your sell-side analyst is talking to you about it.”

The cost for a service like this is €3,500-€5,000 a month for monthly monitoring. To make it viable, says Scnurr, an investor would perhaps want a 5-10% holding in an asset.

With the advent of Google Earth, and with high-definition constant moving images of the Earth coming online from Urthecast, which uses two cameras on the International Space Station, Schnurr expects this type of service to be ubiquitous in a few years, but he says some institutions that have looked at it have had difficulty factoring it into their investment processes.

“Some institutions have said they don’t know how can use it with existing data feeds.”

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